How to Budget to Avoid Financial Surprises

Medical bills, HOA fees, winter gas, and summer electricity. Expected or not, each of these can put a strain on your finances. And while it’s easy to set up a personal budget for monthly expenses, the quarterly or annual ones can be confusing. How to budget for those? A great way is to create a thorough personal budget. We’ll show you how to budget for your income; to project monthly, quarterly, and annual expenses; and even to save for unexpected expenses.

A budget gives you more control over how you spend your money and helps you save for things like a vacation or down payment.

How to create a budget

There are different ways to create a personal budget, but for the one we’re looking at today you’ll need a checking and a savings account. You can learn more about picking the best ones for you somewhere like NerdWallet.

This budget tracks your monthly expenses and how much to put into savings every month for nonmonthly expenses. Keeping a larger savings account will also help cushion against unexpected expenses.

Find a fillable Excel budge sheet here. The budget sheet will make it easy to see how to create a budget. If you prefer to it by hand, you certainly can, but it may be helpful to follow along on the Excel.

There are 6 columns: Income, Monthly Expenses, Irregular Expenses, Weekly Expenses, Streaming/Data, and To Savings.

Income:

This is your after-tax income, what is shown on your paycheck. For convenience, list the things already subtracted from your check, like insurance or retirement savings. This budget assumes you’re being paid twice a month. If you’re paid every other Friday though, sometimes you’ll get paid three times in a month. Rather than accounting for that, because it’s complicated and changes from year to year, just budget for being paid twice a month and use the occasional third payment as additional savings. If you have other monthly income, like a pension or social security check, include that too.

Monthly Expenses is for expenses that happen once a month: rent, water bill, internet, allowance, etc. For variable monthly expenses, like utilities, you’ll need to decide how to record them in your personal budget. There are a few ways to do this. You can always budget as though it’s the month where the bill is highest, skew towards a more expensive monthly cost, or, if offered, sign up for a plan that lets you pay an averaged utility rate across the whole year.

Irregular Expenses is for expenses that aren’t monthly or weekly, so things that occur annually, or quarterly, such as HOA fees, annual memberships, etc. Include the total cost for the entire year in your budget. You’ll need to multiply a quarterly cost by four, for example, to get the annual amount you need to pay.

Streaming/Data is separate from monthly expenses because it’s a category of expenses that changes frequently for some people. Adding or removing service from here is easier than removing them from the monthly column, and if you’re using the Excel sheet, less likely to create an error.

Weekly Expenses is for expenses that occur every week. It’s separate from Monthly Expenses because weekly expenses can occur a different number of times each month, depending on the number of days in the month and which day the expense falls on. If you always have your house cleaned on Wednesdays, some months it will get cleaned four times and some months five.

To Savings is a sum of your irregular and weekly expenses, divided by twelve, and then how much extra money you want to save on top of that, for vacations or unexpected expenses. If you have additional investing or saving, add that here.

The last step in your personal budget is to determine how your expenses are in relation to your income, subtract your Monthly Expenses and To Savings from your Income.

Now that the budget is done, so are you. Right?

No, to ensure that your budget is accurately reflecting your expenditures, it’s important to periodically audit yourself. One of the simplest ways to do that is to record all the money you spend for one month, and compare your expenditures to your personal budget. Then you rebalance your budget allocations based on what your real-life spending was.

And that’s it! Now that you have learned how to budget, you can rest easy knowing that you won’t be surprised by a quarterly or annual expense you forgot about or unexpected bills.